A little bit about whats going on in the world of International Trade Law.

Turning up the heat: India’s Solar Cell dispute begins

On the 14th of this month, the United States notified the DSB of its intention to establish a panel in the India-Solar Cells case, following the failure of last year’s consultations. These consultations had proceeded in two phases- the first beginning in February last year (wherein Japan had joined in as a third party)and the more recent one began earlier this year.

Highlighting the rising importance of developing nations, the case relates to certain requirements imposed by the Indian government with respect to solar power developers (or their successors in contract). The program that has run into trouble at the WTO carries the name of one of the countries most beloved political (and sometimes, controversial) figures.

The US claims that the following facets of the Jawaharlal Nehry National Solar Mission (NSM) are inconsistent with WTO principles:

1) Requirement to purchase solar cells/modules of domestic origin in order to enter into certain power-purchase agreements under Phase I and Phase II of the NSM
2) Additional benefits like long-term tariffs for electricity, contingent on the purchase of these domestically produced solar cells.

The dispute was inevitable and while its current importance is undeniable, the final ruling will surely leave a mark on WTO jurisprudence. The United States has based its complain on the fact that the measures appear to “nullify or impair the benefits accruing to the United States directly or indirectly under the cited agreements.”
USTR Micheal Froman called the requirements “unfair restrictions on international trade” and accused the Indian government for discriminating against US exports by “ requiring solar power developers to use India- manufactured equipment instead of U.S. equipment.”

On a preliminary examination, it appears that the measures that are in issue run contrary to Article III:4 of the GATT agreement, Article 2.1 of the TRIMs Agreement and certain provisions in the SCM agreement.
India has sought to rebut these accusations by claiming that its solar program aims lessen the impact of chronic energy shortages. There is popular belief that these policies will double India’s renewable energy output by 2017. The fact that this is the second dispute concerning the program shows that the Americans aren’t too impressed with this ideology. The trade dispute goes to show the deteriorating relationship between the two countries, especially after the friction caused due to the recent diplomatic row over Devyani Khobragade.

Ron Kirk sums up the issue from the US side:

“Let me be clear: the United States strongly supports the rapid deployment of solar energy around the world, including with India. Unfortunately, India’s discriminatory policies in its national solar program detract from that successful cooperation, raise the cost of clean energy, and undermine progress toward our shared objective.”

In recent news, green groups like Sierra Club, Greenpeace and Friends of the Earth are pushing the US to drop the litigation as it would only “only hurt the growth renewable energy resources”.

Hey!
Love the link-up to the diplomatic issues with the Khobragade event! It has probably made US a whole lot more aggressive than they would usually be.

On a side-note, I may be wrong, but I don’t think the JNNSM provides ‘additional benefits like long-term tariffs for electricity’ contingent upon the use of domestic content. Could you cite your source for this? As far as I understand the issue, it seems the issue is the existence of a domestic-content requirement for selection.

Under Phase II of the JNNSM, the GoI provides Viability Gap Funding (VGF) which covers the viability gap between the market rate of electricity and the actual rate (cost + profit) of electricity generation from renewable sources. This funding is available under 2 (equal) categories: Open (350MW-using Domestic content or not) and DCR (350MW using Domestic Content).

Hi!
I had initially sourced the information from the official Panel request of the United States, available here: http://www.worldtradelaw.net/pr/ds456-5(pr).pdf
I did some background checking, and I found the Ministry of New and Renewable Energy Resolution that authorized the program. (http://www.mnre.gov.in/solar-mission/jnnsm/resolution-2/)
In essence, the government seems to be in favor of adopting a multi-step process which would inter alia involve some tariff structres for domestic producers. Its also important to remember that the end aim of the misssion was to primarily encourage domestic production of renewable energy. And in that light, it could be argued that the Government is doing exactly that.